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Intellectual Property, Taxation and State Aid Law

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State Aid Law and Business Taxation

Part of the book series: MPI Studies in Tax Law and Public Finance ((MPISTUD,volume 6))

Abstract

This contribution on Intellectual Property, Taxation and State Aid Law investigates whether some tax incentives for Research and Development—and Innovation (R&D or R&D&I) adopted by EU Member States are in line with the legal framework of State Aid rules in the context of the EU policy objectives and of article 179 TFEU. The main issue is to know whether output tax incentives such as Patent Box regimes could be considered as selective State aid by the ECJ. The chapter considers this issue both prior to any amendments suggested by the OECD BEPS Action 5, and after potential implementation of the modified nexus approach. The result of this investigation shows that some features of the patent box regimes could trigger the application of article 107 (1) TFEU. Additionally, a notification under the State aid modernization rules would not lead to a positive decision as several doubts remain on how output tax incentives such as Patent box regimes remedy the market failures for which a State aid is granted, i.e. increasing R&D&I in the EU (and not in one Member State only).

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Notes

  1. 1.

    Article 107(1) TFEU; European Commission (2014a, e).

  2. 2.

    Article 4(3) TFEU and articles 179–190 TFEU.

  3. 3.

    OECD (2013); European Commission (2014b), p. 17.

  4. 4.

    OECD (2002), para. 63.

  5. 5.

    OECD (2002), para. 87.

  6. 6.

    European Commission (2010b).

  7. 7.

    Arginelli gives account of this research. See Arginelli (2015). See also Matteotti and Roth (2015a, b). Danon (2015), Luja (2015).

  8. 8.

    European Commission (2015), para. 2.3 on patent boxes and nexus approach; European Commission (2009) on harmful tax competition and the code of conduct.

  9. 9.

    Danon (2015). European Commission (2014b), OECD (2015), Traversa (2014), Hansson and Brokelind (2014), and Luts (2014).

  10. 10.

    World Trade Organization (2015).

  11. 11.

    See for instance Anderman and Schmidt (2011), pp. 33 ff.

  12. 12.

    The economic literature reports a link between large investments in R&D spending and an IPR granting monopoly. See for instance Mathieu and van Pottelsberghe de la Potterie (2010).

  13. 13.

    Bloom et al. (2007). Cisnero (2014b).

  14. 14.

    For an overview of relevant literature, see Cisnero (2014a).

  15. 15.

    See for instance ECJ, IMS Health GmbH &co, C-418/01, 29 April 2004, EU:C:2004:257 on the application of art. 102 TFEU (abuse of dominant position). For a comment, see Schovsbo (2012), p. 40.

  16. 16.

    Bloom et al. (2002), Griffith et al. (2011, 2014).

  17. 17.

    European Commission (2010a, b).

  18. 18.

    European Commission (2014a), para. 4.

  19. 19.

    European Commission (2012).

  20. 20.

    ECOFIN Council (2013), p. 19.

  21. 21.

    Council of the European Union (2015), pp. 1 ff.

  22. 22.

    European Commission (2013b), pp. 1 ff.; European Commission (2014e), pp. 1 ff.

  23. 23.

    European Commission (1998). See also European Commission (2014c).

  24. 24.

    For a detailed analysis of the Patent Box regimes, see Micheau and De la Brousse (2013), pp. 155–163.

  25. 25.

    Schön (1999) was one of the first authors to explain the selectivity requirement.

  26. 26.

    This is the view of for instance Luja (2015), p. 6, referring to the Commission’s practice: European Commission (2008), p. 3; European Commission (2005), p. 2 and EFTA Surveillance Authority (2011).

  27. 27.

    See for instance Szudoczky (2014), chapter 9.

  28. 28.

    See for instance Evers et al. (2015); Arginelli (2015), pp. 32–33. The IFA congress for 2015 studies in a comparative approach R&D incentives of many jurisdictions where some sources can be fetched.

  29. 29.

    ECJ, Portugal v. Commission, C-88/03, 6 September 2006, EU:C:2006:511, para 54; ECJ, Adria-Wien Pipeline GmbH and Wietersdorfer & Peggauer Zementwerke GmbH v Finanzlandesdirektion für Kärnten. C-143/99, EU:C:2001:598 para 41.

  30. 30.

    SA.38375 State aid which Luxembourg granted to Fiat, negative decision of 21 October 2015 not published yet; SA.38374 State aid implemented by the Netherlands to Starbucks, negative decision of 21 October 2015, not published yet.

  31. 31.

    GC, Heitkamp Bauholdig GmbH, T-287/11, 4 February 2016, EU:T:2016:60, para 141.

  32. 32.

    ECJ, European Commission (C-106/09 P) and Kingdom of Spain (C-107/09 P) v Government of Gibraltar and United Kingdom of Great Britain and Northern Ireland. 15 November 2011, EU:C:2011:732.

  33. 33.

    See for instance Zammit (2015).

  34. 34.

    Commission decision of 1 April 2008 (European Commission (2011)) confirmed in the General Court’s cases: Spain v. Commission, T-515/13 and T-719/13, 17 December 2015; Autogrill España, SA v European Commission, T-219/10, 7 November 2014, EU:T:2014:939 and Banco Santander, SA and Santusa Holding, SL v European Commission, T-399/11, 7 November 2014, EU:T:2014:938 . Both are under appeal to the ECJ under the numbers C-20/15 P and C-21/15 P.

  35. 35.

    ECJ, Banco Santander, SA and Santusa Holding, SL v European Commission, T-399/11, 7 November 2014, EU:T:2014:938 at para 76.

  36. 36.

    AG Kokott suggested in her opinion in C-66/14 of 14 April 2015 that this distinction between “national and non-national” beneficiaries would not be relevant. ECJ, Finanzamt Linz v Bundesfinanzgericht, Außenstelle Linz, C-66/14 5 October 2015, EU:C:2015:661.

  37. 37.

    See Luja (2015).

  38. 38.

    At least that was the Commission’s view in its 1998s notice.

  39. 39.

    For arguments in support of IP box stimulating new R&D and favouring a spill over effect of technology transfers, see Arginelli (2015), p. 41.

  40. 40.

    Draft Commission Notice on the notion of State aid pursuant to article 107(1) TFEU, 14 January 2014, para 138.

  41. 41.

    Hansson and Brokelind (2014), p. 189.

  42. 42.

    Arginelli (2015), pp. 40 ff.

  43. 43.

    ECJ, Paint Graphos and others, Joined Cases C-78/08 to C-80/08, 8 September 2011, EU:C:2011:550, paragraph 75.

  44. 44.

    Luts (2014), p. 266.

  45. 45.

    Most EU Member States are also OECD members except for Cyprus, Latvia, Lithuania, Malta (enjoying a patent box regime), Romania, Bulgaria and Croatia.

  46. 46.

    Arginelli (2015), p. 29.

  47. 47.

    For instance the UK patent box regime, see Obuoforibo (2013), section 3.4.

  48. 48.

    France for instance, applies to royalties and the outright sales of patent rights a reduced rate for long term capital gains (art. 39.12° CGI). Some specific provisions on the control of the substance of the transactions allow the tax authorities to challenge the right to deduction of the licensee especially when both companies are related (art. 39.13° CGI).

  49. 49.

    European Commission (2014c), para. 39 ff., and para § 184, quoting GIL insurance C-308/01.

  50. 50.

    ECJ, GIL Insurances, C-308/01, 29 April 2004, EU:C:2004:252, para 74; Commission Notice of 1998, para 12.

  51. 51.

    ECJ, Cadbury Schweppes plc and Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, 12 September 2006, EU:C:2006:544, para 76.

  52. 52.

    Szudocky explains the link and the similarity between these two fields of law in her PhD Thesis. See Szudoczky (2014).

  53. 53.

    OECD (2015), para. 34.

  54. 54.

    OECD (2015), para. 36.

  55. 55.

    By analogy see European Union (2006) and the de facto selectivity of supporting SMEs access to capital risk.

  56. 56.

    OECD (2015), para. 33.

  57. 57.

    OECD (2014), footnote 8 of Chapter 4.

  58. 58.

    ECJ, Argenta Spaarbank NV v. Belgische Staat, 4 July 2013, EU:C:2013:447.

  59. 59.

    ECJ, C-388/14, Timac Agro,17 December 2015, EU:C:2015:829, para 21/22.

  60. 60.

    ECJ Société Baxter, B. Braun Médical SA, Société Fresenius France and Laboratoires Bristol-Myers-Squibb SA v Premier Ministre, Ministère du Travail et des Affaires sociales, Ministère de l’Economie et des Finances and Ministère de l’Agriculture, de la Pêche et de l’Alimentation C-254/97, 8 July 1999, EU:C:1999:368; Laboratoires Fournier SA v Direction des vérifications nationales et internationales, C-39/04, 10 March 2005, EU:C:2005:161; Commission v. Spain C-248/06 13 March 2008 C-10/10 EU:C:2008:161; Commission v. Austria, C-10/10, 16 June 2011, EU:C:2011:399; EU Commission, Motivated opinion against Ireland (43/59 TFEU, IP/07/408- 23 March 2007).

  61. 61.

    Traversa shows that the ECJ case law in other policy fields (culture, environment etc.) does not hold the same line of reasoning, and that a mild territorial justification may be accepted. See Traversa (2014), p. 337.

  62. 62.

    ECJ Sovraprezzo, 73/79 EU:1980:129 para 11; Glaxo Wellcome GmbH & Co. KG v Finanzamt München II,C-182/08, 17 September 2009, EU:C:2009:559, para. 34; Draft notice on Business Taxation (2014), p. 41, note 214. It was also suggested by AG Kokott on the case C-66/14 Finanzamt Linz, (infra n. 57) in her opinion of 16 April 2015 para. 28.

  63. 63.

    This reasoning arises from AG Saggio in the C-254/97 Baxter Case, as identified by Matteotti and Roth (2015a, b), p. 774.

  64. 64.

    ECJ, Finanzamt Linz v Bundesfinanzgericht, Außenstelle Linz, C-66/14 5 October 2015, EU:C:2015:661.

  65. 65.

    OECD (2015), para. 39: IPR favorable regimes can be extended to other IP asset featuring a certification process only when the qualifying taxpayer has an annual global group-wide turnover of 50 million € and do not earn themselves more than 7.5 million € in gross revenues from all IP assets on a 5-year average.

  66. 66.

    Luja (2015).

  67. 67.

    Art. 107 (3) TFEU; European Commission (2014a, e); Art.108(3) TFEU and Council of the European Union (1999).

  68. 68.

    Art. 107 (1) TFEU, and European Commission (1998); European Commission (2014c).

  69. 69.

    The correct source of law for this statement is not clear, as they are divergences in primary (ECJ case law) and secondary EU law. European Commission (2013a). See Luja (2015), 8 f. 22. On the reporting requirement, see European Commission (2014e), art. 9.

  70. 70.

    In 2012, for instance Sweden introduced a scheme for risk capital limiting the face value of the tax relief for investors to reach the then applicable de minimis cap. See Brokelind (2011).

  71. 71.

    European Commission (2014a, e).

  72. 72.

    European Commission (2014e), art. 4 (1) i.

  73. 73.

    Hansson and Brokelind (2014), pp. 175–176; Palazzi (2011), p. 48; Arginelli (2015), p. 20.

  74. 74.

    European Commission (2014a), para. 46 ff. To demonstrate that individual aid contributes to an increased level of R&D&I activities, the scheme must lead to increase in project size or number of people assigned to the project; there must be an increase in the scope of research, in its speed, of in the total amount of spending without a corresponding decrease in the budget allocated to other projects.

  75. 75.

    Fundamental Research is defined as experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any direct commercial application or use in view. See European Commission (2014a), preamble, (m).

  76. 76.

    The Framework’s last page shows an interesting table with all these categories and the different percentages allowed for aid intensity. See European Commission (2014a).

  77. 77.

    The Framework’s definition (y) of organisational innovation excludes those costs for reorganization that do not lead to total change of undertaking’s practices. Mergers and acquisitions for instance are not covered. See European Commission (2014a).

  78. 78.

    Luja (2015), 3.1.3.

  79. 79.

    See for instance the Irish R&D tax credit, Section 766 and 766(A) Taxes Consolidation Act 1997, introduced in 2004 and the contemplated Knowledge Development Box rules. See also European Commission (2014d).

  80. 80.

    Expressed for in instance in European Commission (2015), 10 at 2.3.

  81. 81.

    For discussions on the neutrality principle, see for instance Schön (2015), 271 ff. Avi-Yonah (2015), pp. 90–98.

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  1. Lund University, Lund, Sweden

    Cécile Brokelind

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  1. Tax Institute, HEC-University of Liège , Liège, Belgium

    Isabelle Richelle

  2. Max Planck Institute for Tax Law and Public Finance, Munich, Germany

    Wolfgang Schön

  3. Faculté de droit et de crimonologie, Université catholique de Louvain , Louvain-la-Neuve, Belgium

    Edoardo Traversa

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Brokelind, C. (2016). Intellectual Property, Taxation and State Aid Law. In: Richelle, I., Schön, W., Traversa, E. (eds) State Aid Law and Business Taxation. MPI Studies in Tax Law and Public Finance, vol 6. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-53055-9_12

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